[2023] KETAT 953 (KLR)

Pinkerton’s Kenya Limited v Commissioner Domestic Taxes (Tax Appeal 381 of 2022) [2023] KETAT 953 (KLR) (Civ) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 953 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal 381 of 2022

E.N Wafula, Chair, E Ng'ang'a, RO Oluoch, Cynthia B. Mayaka, AK Kiprotich & B Gitari, Members

November 24, 2023

Between

Pinkerton’s Kenya Limited

Appellant

and

Commissioner Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability Company incorporated under the Companies Act whose principal activity is offering security services.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue.

3. The Respondent conducted tax investigations into the business affairs of the Appellant for the tax period 2016 to 2021 with an intention of confirming that the Appellant was tax compliant for the tax period under review.

4. On 5th and 6th October, 2021 the Respondent raised additional income tax assessment for the tax period years 2017, June 2018, June 2019, June 2020 and June 2021.

5. The Appellant raised late objections to the additional tax assessment vide a letter dated 13th October, 2021.

6. The Respondent reviewed the Appellant’s objection together with the supporting documents and issued its objection decision vide a letter dated 16th March, 2022 for additional taxes of Kshs. 96,171,149. 00.

7. The Appellant being aggrieved and dissatisfied with the decision of the Respondent lodged the Appeal herein vide Notice of Appeal dated 11th April 2022.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated on 11th April 2022 and filed on 14th April 2022:a.That not all expenses were consideredb.That the revenue assessed is un-realisticc.That input tax was omitted

Appellant’s Case 9. The Appellant’s case is supported with the following documents:a.The Appellant’s Statement of Facts dated 11th April 2022 and filed on 14th April 2022 together with the documents attached thereto.

10. That the Appellant received from the Respondent 2017 to 2019 additional assessments.

11. That the Respondent confirmed the assessments on 16th March 2022.

12. That not all expenses were considered in the additional assessments

13. That the revenue assessed in the said assessments was unrealistic, estimated and excessive.

14. That input tax was omitted in computing VAT payable

Appellant’s Prayers 15. That the Appellant prays for orders, that:a.The Respondent to amend the assessment as per returns and accounts as applicable.

Respondent’s Case 16. That the Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -i.The Respondent’s Statement of Facts dated on 13th May 2022 and filed on the same day.ii.The Respondent’s written submissions dated and filed on 13th December, 2022.

17. That the Respondent conducted tax investigations into the business affairs of the Appellant for the tax period year 2016 to 2021 with an intention of confirming that the Appellant was tax compliant for the tax period under review.

18. The Respondent avers that the tax investigations established that there were variances between the sales declared by the Appellant in its filed Income tax returns and the purchases claimed by its customers tabulated as follows:-Details 2017 2018 2019

Sales as per IT2C 31,701,477 1 1

Sales as per inputs claimed byCustomers 86,681,754 79,352,547 114,027,423

Variance 54,980,277 79,352,546 114,027,422

19. The Respondent averred that there were variances between the sales declared by the Appellant in its VAT returns and the purchases claimed by its customers as hereunder:-Period 2017 2018 2019 2020 2021

Inputsclaimed notdeclared bythe Taxpayer 57,938,307 22,579,866 49,900,532 41,220,638 51,258,445

20. The Respondent avers that there was variances between the purchases claimed in the Appellant's Income tax returns and the purchases as per the VAT 3 returns as tabulated below:-Details 2017 2018 2019

Purchases as perVAT returns 0 12,294,732 9,385,176

Purchases as perIncome TaxReturns 0 0

PurchasesVariances 0 12,294,732 9,385,176

21. The Respondent submitted that the Appellant vide a letter dated 29th September, 2021 through its tax agents Kimani & Associates attempted to explain the variances and attached accounts and returns.

22. That on the 5th and 6th October, 2021 the Respondent raised additional Income tax assessments for the tax period years 2017, 2018 and 2019 and VAT assessments for the months June 2016, June 2017, June 2018, June 2019, June 2020 and June 2021.

23. That the Appellant raised late objections to the additional tax assessments vide a letter dated 13th October, 2021.

24. The Respondent averred that vide various correspondences the Appellant availed additional documents namely; bank statements, trial balance and financial statements for the tax period years 2017, 2018 and 2019.

25. The Respondent stated that it reviewed the Appellant's objection together with the supporting documents and assessed additional taxes of Kshs. 96,171,149. 00 vide its objection decision letter dated 16th March, 2022.

26. The Respondent relied on the following relevant statutes:-i.Section 24 of the Tax Procedures Act, 2015. ii.Section 28 of the Tax Procedures Act, 2015. iii.Section 29 of the Tax procedures Act, 2015. iv.Section 31 of the Tax Procedures Act,2015. v.Section 58 and 59 of the Tax Procedures Act, 2015. vi.Section 3(2) (a) (i) of the Income Tax Act.vii.Section 15 of the Income Tax Act.viii.Section 16 of the Income Tax Actix.Section 56 of the Income Tax Actx.Section 77 of the Income Tax Act.xi.Section 17 of the VAT Act, 2013.

27. That Section 24 of the Tax Procedures Act, 2015 allows a taxpayer to file returns but further provides that the Commissioner is not bound by the information provided therein and can assess the tax liability based on any other available information.

28. That Section 77 of the Income Tax Act and Sections 29 and 31 of the Tax Procedures Act, 2015 allows the Respondent to issue additional assessments where a taxpayer has been assessed of a lesser amount based on any additional available information and to the best of the Commissioner’s judgement.

29. The Respondent posited that there were variances in the sales declared by the Appellant in the audited accounts, sales declared in the general ledger, sales declared in the trial balance and the purchases claimed by its customers.

30. The Respondent claimed that the bank statements availed by the Appellant at the objection stage were incomplete and could not corroborate the revenue declared in the audited accounts.

31. The Respondent argued that the expenses claimed in the audited accounts could not be validated as no invoices or proof of payment was availed.

32. The Respondent affirmed that the additional VAT assessments were based on variances in the sales declared in the VAT returns and the purchases claimed by the customers.

33. The Respondent posited that the sales inconsistencies were not reconciled and the sales in the revised audited accounts could not be ascertained due to lack of supporting documents.

34. The Respondent stated that the Appellant claimed Input VAT beyond the statutory six (6) months from the time of supply and importation. That the additional tax assessments were based on the variances in the Appellant's VAT3 and the IT1 returns vis a vis the purchases claimed by its customers for the tax period years 2016 to 2021.

35. The Respondent averred that the Appellant failed to avail documentation in support of its business expenditure as required under Section 23, Sections 58 and 59 of the Tax Procedures Act to enable the Respondent ascertain its tax liability.

36. The Respondent argued that at the objection stage the Appellant contested the additional assessments but failed to reconcile the variances and the correctness of the figures in the audited accounts could not be ascertained.

37. The Respondent submitted that it is empowered under Sections 29 and 31 of the Tax Procedures Act, 2015 to issue additional assessments based on available information and its best judgement.

38. The Respondent submitted that the objection decision dated 16th March, 2022 is proper based on the information available to the Commissioner.

Respondent’s Prayers 39. The Respondent’s prayed to this Tribunal for orders that:a.The objection decision dated 16th March, 2022 confirming additional taxes of Kshs 96,171,149 for the years 2016 to 2021 be upheld.b.This Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues For Determination 40. The Tribunal having evaluated the pleadings and submissions of the parties is of the view that there is one issue that calls for its determination; Whether the Respondent’s Objection Decision dated 16th March 2022 was proper

Analysis And Findings 41. The Tribunal having determined the issue falling for its determination proceeded to analyse it as hereunder.a.Whether the Respondent’s Objection Decision dated 16th March 2022 was proper

42. The Appellant averred that the revenue assessed by the Respondent was unrealistic, estimated and excessive.

43. The Respondent stated that the additional tax assessments for Income tax for the years 2017-2019 and VAT for June 2016, June 2018, June 2019, June 2020 and June 2021 were based on the variances in the sales declared by the Appellant in its filed Income tax and VAT returns and the purchases claimed by its customers and also in the purchases in its Income Tax and VAT returns. That the Appellant failed to provide documents to support its objection and also claimed its VAT outside the statutory six (6) months.

44. The Tribunal has gleaned through the evidence on record and it persuaded by the Respondent’s assertion that it was not provided with the document that it required to enable it reconsider its initial assessment. For example the Appellant did not provide any invoice, ledgers or receipt of proof of payment to validate the information contained in its audited account or the notice of objection.

45. The Appellant instead came to the Tribunal with bare assertions which amounted to shifting the burden of proof to the Respondent contrary to Section 56(1) of the TPA which provides as follows regarding burden of proof:-“In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect”

46. Flowing from the foregoing, the Tribunal holds and finds that the Respondent was justified to rely on its best judgment and available information in determining the additional Income tax and VAT assessments against the Appellant.

47. This holding is consistent with the decision of the court in Tumaini Distributors Company (K)Limited v Commissioner of Domestic Taxes [2020] Eklr where the High Court held that:-“The Commissioner clearly explained that it based its decision the statement of accounts and returns the Company had filed. The Tribunal appreciated this fact when it concluded that it was the duty of the Company to provide all the documents and that the Commissioner was entitled to rely on the self-assessments and returns lodged by the Company in the absence of any other documents.”

48. The Appellant’s failure to discharge its burden of proof by way of providing evidence to support of its assertions means that Respondent’s Objection decision dated 16th March 2022 was proper.

Final Decision 42. In view of the foregoing, the Tribunal finds that the Appeal is unmeritorious and accordingly makes the following Orders;a.That the Appeal is hereby dismissed.b.That the Objection decision dated 16th March 2022 be and is hereby upheld.d.Each Party to bear its own cost.

50. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023ERIC NYONGESA WAFULA - CHAIRMANEUNICE NG’ANG’A - MEMBERDR RODNEY O. OLUOCH - MEMBERCYNTHIA B. MAYAKA - MEMBERABRAHAM K. KIPROTICH - MEMBERBERNADDETTE GITARI - MEMBER